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Draft Electricity Generation Policy Statement 2010: Scotland – A Low Carbon Society

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The Implications and Future Role for Energy Policy

Implications of these developments for the electricity generation statement

All of these developments - and especially the UK electricity market reform ( EMR) exercise - will change the market fundamentals for investment in new sources of electricity generation. Given the wide-ranging scope of the EMR exercise - its potential to influence carbon prices, set emissions performance standards, and its impact on existing low carbon price support mechanisms such as the Renewables Obligation - the Scottish Government has a major interest its outcomes, and will be fully involved as the UK Government takes it forward. It is a real opportunity for the Scottish Government and the low carbon sector to make the case for reform so that we can realise the full potential of Scotland's low carbon assets and deliver greater market certainty for electricity producers and for consumers. The final decisions taken on EMR, and the new legislation that will be required to enact it, could have a substantial bearing on the policies set out in this Statement, and the 2011 s.38 statement will develop our thinking further in the light of the emerging proposals.

1). The role of renewable electricity generation

As highlighted by the new developments in renewable electricity detailed above, there has been a step change over the last few years in the contribution that these technologies could make towards both our climate change ambitions for decarbonisation and the provision of a secure and sustainable generation source. As such, the Scottish Government has increased the target level for renewable generation from 50% to 80% of gross electricity consumption in Scotland by 2020. The increased importance of renewable electricity in this statement reflects in part the success of the Scottish Government energy consenting regime, which remains committed to streamlining the consents process to meet a target of 9 months for determining Section 36 (Electricity Act) applications that do not go to public local inquiry. This Government has, to date, determined 43 projects in 45 months.

Biomass has a unique role to play in the generation of energy as it can be used for heat or electricity. In its liquid form, it can also be used for transport fuels. In terms of electricity generation, biomass can make a minor contribution to baseload and, if sourced locally, to security of supply. There is around 130 MW capacity for biomass electricity in Scotland, operating or in build, capable of making this kind of contribution.

Box 1: The Role of Biomass

Heat constitutes some 50% of the current total energy demand in Scotland. The Scottish Government has therefore placed a high priority on the achievement of our renewable heat target of 11% of heat demand to be sourced from renewables by 2020 (the current level of renewable heat is around 1.4%). This priority is strengthened by Scottish Ministers' obligation (under the Climate Change Act Scotland) to publish a Renewable Heat Action Plan and to keep it updated to 2020.

Given the multiple energy uses to which biomass can be put, the limits to supply, and the competition for that supply from other non-energy sectors, biomass policy and support need to encourage the most efficient and beneficial use of this finite resource.

Policy summary

The Scottish Government has set out its policy on biomass in the National Planning Framework II, s36 Thermal Guidance, and in the s36 Biomass Scoping Opinion guidance. This policy can be summarised as follows:

The Scottish Government would prefer to see biomass deployed in heat-only or combined heat and power schemes, off gas-grid, at a scale appropriate to make best use of both the available heat, and of local supply.

The rationale for this policy is clear:

  • Evidence suggests that the use of biomass for heat-only or combined heat and power use will be essential in order to meet Scotland's target for renewable heat 1;
  • Use of available heat in heat-only and CHP schemes achieves 80-90% energy efficiency for the former and 50-70% for the latter as opposed to 30% in electricity-only schemes. Clearly with a limited resource, maximum efficiency needs to be encouraged;
  • The use of biomass first and foremost off the gas-grid ensures the highest carbon savings (given that in most cases it will be displacing oil or coal), and can also make the greatest impact on alleviating fuel poverty;
  • Whilst the Scottish Government is not categorically opposed to large scale development, it is likely that the larger the proposed scale, the more difficult it will be for the developer to utilise the heat generated and to source supply locally. Hence any development should be scaled appropriately to make efficient use of the available heat and local supply. Large scale developments which do not maximise heat use may also displace supply from our priority of delivering our heat target;
  • The use of local supply minimises carbon emissions from transport and provides the best opportunities for economic and employment benefits. It also decreases the risk to security of supply and ensures the development can act as a decentralised energy plant, in line with stated Scottish Government aims. Scaling in accordance with local supply may also help to reduce the impact on other competitors, such as the timber processing industries which deliver low carbon products for the construction and other sectors and contribute to economic development; and
  • There may be a significant role for imported biomass. However, the global market is an immature one and is likely to be volatile given projections of increased global demand. Its use will be dependant on price, availability and evidence of sustainability. As with the local resource, its use should be in plants that support maximum heat use and de-centralised energy production.

Next steps: review of support

The Scottish Government has signalled its intention to review support for biomass in order to ensure that it is aligned with the policy rationale above. This review will include consultation on future support for biomass electricity under the Renewables Obligation Scotland, due to take place in 2011, and will take into account the likely impact of the Renewable Heat Incentive being introduced at a UK level.

Box 2: Energy from Waste (EfW)

The Scottish Government believes that energy generated from waste (EfW) has a contribution to make to meeting Scotland's energy requirements. Anaerobic digestion has an important role to play in helping Scotland become a Zero Waste society, diverting food, garden and other organic waste from landfill, reducing methane emissions, producing fertiliser or soil additives for use on local farms, reducing climate change impacts, and creating biogas which can be used as a renewable energy source.

Energy from waste combustion processes (i.e. incineration, pyrolysis and gasification) can also make a contribution to both renewable energy and climate change targets, recovering value from resources that cannot be reused or recycled and would otherwise be lost in landfill, and offsetting consumption of virgin fossil fuels. The Scottish Government's Zero Waste Plan includes a commitment to regulate the types of waste that may be used in energy from waste combustion processes, to ensure that they are only used for materials that cannot be reused or recycled to yield greater value.

2). The role of electricity generation from thermal plants

The market will continue to bring forward proposals for new or upgraded thermal electricity generation capacity in Scotland - as is already the case with new applications for developments at Hunterston and Cockenzie currently going through s.36 consent procedures. Nevertheless, the introduction of the CCS levy, the 300 MWeCCS requirement, and the proposed UK carbon floor price and Emissions Performance Standard, mean that thermal plants will be operating in a highly regulated - and increasingly constrained - market.

It has never been the intention of the Scottish Government to support unabated new coal plants in Scotland. Such an approach would be wholly inconsistent with our climate change objectives. That is why we have made it a clear requirement that any new power station in Scotland must be fitted with a minimum CCS on 300 MWe of its generation from day one and why we are committed to decarbonising electricity generation by 2030 through a combination of renewable electricity and fossil fuels with CCS.

Box 3: Policy on carbon capture and storage on new thermal generation

The building of any new thermal-based stations requires consent from Scottish Government Ministers under section 36 of the Electricity Act 1989. In November 2009, the Scottish Government announced its intention to require CCS to be fitted to all new coal-fired power stations as follows:

  • From 9 November 2009, any application for a new coal plant in Scotland will need to demonstrate CCS on a minimum of 300 MW (net) of capacity from their first day of their operation;
  • Further new builds from 2020 would be expected to have full CCS from their first day of operation;
  • With regard to retro-fitting of existing coal plants, a 'rolling review' of the technical and economic viability of CCS will take place with the aim of taking a final view on retro-fitting by 2018, with the likelihood of having existing plants retro-fitted by no later than 2025; and
  • If CCS is not seen as technically or financially viable at some stage in the future then alternatives will be considered based around the Emissions Trading Scheme, including the possibility of an Emissions Performance Standard.

This policy relates to coal stations only. The Scottish Government's position on gas, oil and thermal stations is that for stations over 300 MWe, applicants will have to demonstrate that any new applications demonstrate carbon capture readiness.

In sum, this means that our policy for reducing emissions from thermal generation is that CCS should be fitted to new or existing Scottish coal power stations by 2020, to be economically and technical proven by 2020 and progressively fitted to all coal and gas thermal plants thereafter by 2030.

As we have set out in our CCS Roadmap, published in April 2010, Scotland has considerable natural advantages in CO 2 storage, alongside our world-leading research and development expertise. Our ambition is for Scotland to lead the UK and EU in the development of CCS, and to maximise our competitive economic advantage through demonstrating this technology on Scottish power plants such as Longannet, which is now the UK's leading CCS project. This is a technology which can then be exported to meet the IEA's scenario of CCS providing 20% of global emissions reduction.

Box 4: Policy on waste heat from large thermal electricity and CHP plants

The Scottish Government is undertaking a research project to obtain an understanding of the economic and technical potential for using waste heat from large scale power stations and Combined Heat and Power ( CHP) plants in Scotland to provide heating through local district heat networks and in other industrial applications.

Power stations generating electricity are approximately 35% efficient in converting fuel to electricity, with the remainder being discharged as waste heat. If this waste heat is captured then significant amounts of fossil fuel use can be avoided; and

There are approximately 2.4 million households in Scotland, using on average 20 MWh of heat energy each per year. Combined to this are other large-scale users of heat such as public buildings, sports and leisure facilities, hospitals, schools and commercial buildings. These buildings have varying heat requirements for space heating or hot water and have peak loads at different times.

The Scottish Government recognised the opportunity for waste heat to increase energy efficiency and reduce Scotland's greenhouse gas emissions in the Energy Efficiency Action Plan, published in October 2010.

The Scottish Government has decided that as part of any future application, either for new or significant retrofitting for any thermal electricity generating station (gas, coal, biomass etc.), developers will need to provide evidence that they have demonstrated how waste heat from any thermal station could be utilised by residential or non-domestic developments including public buildings and industry. The application would need to demonstrate that a feasibility study on the use of heat had been undertaken and that discussions with local authorities had also been held to investigate the potential demand and identify users of the heat.

3). The effect of energy efficiency improvements on electricity generation

The Energy Efficiency Action Plan for Scotland sets out the framework for the Scottish Government's comprehensive approach to energy efficiency and microgeneration. It focuses on their contribution to energy and economic development, their role in reducing energy consumption in buildings and transport, and their role in delivering climate change targets.

Box 5: Policy on energy efficiency

In order to deliver the targets set in the Climate Change (Scotland) Act 2009, we must deliver a step-change reduction in energy use and move to non-carbon alternatives. Section A of the Energy Efficiency Action Plan reinforces the urgent need for action on energy efficiency. It outlines the challenge, our vision, and our approach. Section B introduces a headline target to reduce Scottish final energy consumption by 12% by 2020, with an indication of how this will be monitored. It also outlines a reporting framework with a number of key indicators that will provide supportive information to the headline target, and highlights a range of areas where the Scottish Government intends to improve data gathering, monitoring and reporting of key energy efficiency action. Section C outlines our actions, programmes and support across the following priority areas:

  • We will focus attention on understanding and shifting behaviour through our co-ordinated approach to Climate Change research, sustainability in education, and influencing practical behaviour through social marketing, information and advice;
  • Improving the energy efficiency of the domestic sector is vital, as around 29% of all energy consumed in Scotland is used in our homes for space and water heating, cooking, lighting, and running electric appliances;
  • We will support businesses to maximise competitiveness through the improved energy efficiency of non-domestic buildings and business processes and by taking advantage of the opportunities that energy efficiency will offer in the transition to a low carbon economy;
  • We will provide clear energy efficiency guidance and leadership to the public sector to enable the delivery of energy saving improvements and exemplary behaviour;
  • We will drive improvements to the energy efficiency of Scottish building stock through building standards;
  • We will proactively support developments across the built environment which strengthen the impact of energy efficiency;
  • We will create an energy and fuel efficient transport system as part of our drive towards a low carbon future for Scotland;
  • In making the most of the new opportunities presented by energy efficiency, we will ensure that our training and education systems are ready and capable to develop the required skills and knowledge so that as many people as possible take up the openings in employment';
  • We will pursue our work on financing energy efficiency on three fronts:
  • making the case for spending on energy efficiency in future budgeting decisions as part of the broader climate change and economic agendas;
  • seeking to maximise the contribution that other public funding can make to energy efficiency, e.g. from Europe; and
  • exploring new finance mechanisms.
  • We will seek to drive forward energy efficiency through our partnerships within Scotland and our national and international engagement, using these to promote and learn from best practice.

The actions set out in the Scottish Government Energy Efficiency Action plan will work in conjunction with the ambitions set out in this electricity generation statement. The combination of reducing demand and incentivising clean supply will provide the most efficient route towards decarbonisation.

4). The role of upgraded transmission infrastructure and interconnections:

Box 6: Policy on transmission infrastructure and interconnections

The Scottish Government vision is for Scotland to play its part in developing onshore and offshore grid connections to the rest of the UK and to European partners - to put in place the key building blocks to export energy from Scotland to national electricity grids in the UK and Europe. We are working to deliver a strategically-planned onshore and offshore electricity transmission network to connect and transport Scotland's vast offshore renewable energy potential.

The existing approach to energy regulation for access and use of the UK electricity grid works against the interests of Scotland's energy industry and impacts on delivery of Scottish, UK and European renewable energy and climate change policies and targets. The locational charging methodology applied by Ofgem levies higher charges on generators furthest from the main centres of demand for connection and use of the grid. It is a barrier to renewable energy generation in Scotland. It is not fit for purpose to deliver a more sustainable, low carbon energy mix, ensure security of energy supply and meet renewable energy targets. We have consistently pressed for a more equitable approach, and welcome the review of charging in Project TransmiT launched by Ofgem in September 2010. This must deliver fundamental and lasting change for a more equitable charging regime.

The Scottish Government is also working to develop interconnections and offshore grid. Making the a UK and EU interconnected Grid concept work requires a strategic, co-ordinated and collaborative approach to developing interconnections between countries, regions and members states. Significant and sustained effort to work with EU countries and regions to standardise electricity transmission and energy regulation is necessary. The Scottish Government is working closely with UK and EU partners on this.

The period 2010-2018 will see significant activity to reinforce and develop the GB system (ands between Scotland and England in particular) and at connecting both our onshore and offshore renewable generators. The Electricity Networks Steering Group ( ENSG) Vision 2020 report (published March 2009) identified the need for a range of grid reinforcement in Scotland, including two cables linking Scotland to the Southern part of the UK.

  • a West Coast 1.8 GW High Voltage Direct Current ( HVDC) link between Hunterston and Deeside - attracting investment of around £760M. Planning for this is underway and the target for commissioning the link is 2012/13; and
  • an East Coast 1.8 GWHVDC link between Peterhead and Hawthorne Pit in Humberside - attracting investment in the region of £700M - the target for commissioning this link is 2018.

At inter-nation level, the Scottish Government is working In partnership with the Governments of Ireland and Northern Ireland on a feasibility study of offshore transmission grid to exploit offshore energy off our west coasts. This Irish Scottish Links in Energy Study ( ISLES) project will become a key building block in delivering sub-sea grid in the Irish Sea. It will report by the end of 2011.

The Scottish Government is working with British Isles colleagues through the British Irish Council framework and an agreement was signed in June 2010 on areas of further joint working on grid development.

The Scottish Government is part of the Adamowitsch Working Group on North Sea grid connections. The Group is a unique forum for sharing information and learning about projects, developments and studies across Member States, helping deepen collective knowledge of offshore development and to promote Scotland's role and potential.

It has identified significant issues to be addressed - around interconnection, standardisation of regulatory and legal frameworks, financing development and political will. A Memorandum of Understanding between 9 Member States and Norway will be signed on 2 December committing to further joint work on: Grid configuration and integration; Market and Regulatory issues; Planning and authorisation procedures. The Scottish Government is working closely with the UK and the Irish Governments on this.

In order to give greater information on the likely scenarios for new low carbon electricity generation in Scotland in the light of the developments in the four key areas above, the Scottish Government has conducted an internal analysis on the future of electricity generation and transmission in Scotland. This work considers the constraints and presents a number of indicative scenarios that would enable us to meet our energy objectives for decarbonisation, security of supply, and for securing economic benefit for Scotland through the development of renewable technologies and carbon capture and storage.